Hey PropertyGuru,
I worked out the formula, for caculation a 14% Gross yeild return. This one is much better than the one, we worked out, as it also allows you to be able to work out what the purchase price should be, if you are going to aim for a 14% return at interest rates of 7%.
Though i havent give the formula a name yet, but its very similar to the way the 11 second solution is caculated.
cheers
s.i.sSave on a regular basis
“People forget that by saving just $3 per day and investing it sensibly over a working life, you’ll end up with around $1 million.”
http://www.theenlightenedway.com/tools/mil_calc.shtmlHi SIS,
Well done! Give it “SIS rule” name.
10.4% return is no more +ve flow property I hope people must be knowing this by now if not please contact SIS and apply SIS rule to get +ve property.
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PropertyGuRuHey PropertyGuru,
thanks for that, but i still couldnt have done it, with out your help. But PropertyGuru is right everyone
10.4% return is no more +ve flow property I hope people must be knowing this by now
If you are finding 10.4% returns, they are only neutrally geared, unless you are able to get low interest rates, they may still fall under +ve cashflow, but those low rates are quickly disappearing.
cheers
s.i.sSave on a regular basis
“People forget that by saving just $3 per day and investing it sensibly over a working life, you’ll end up with around $1 million.”
http://www.theenlightenedway.com/tools/mil_calc.shtmlCongratulations SIS! now you are Gold member !
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PropertyGuRuHi SIS,
I take it you are not willing to share your new “SIS Rule”?
Come on, spill it! [}]
Sue []“Be careful not to step on the flowers when you’re reaching for the stars”
Hi diclem,
Here is the “SIS Rule” very similar to the 11 second solution. Because of interest rates are going up. This rule will work out a 13.52% (we just round it to 14%)Gross yield Return, that must be achieved to obtain a positive cashflow property at 7% interest rates.
SIS Rule no.7 as follow
(Selling Price divide by 769) x 2 = 13.52% Gross Yield Return.
No matter what the selling price is, this will show what the weekly rental must be to achieve a 13.52% GYR, which is now applicable for +ve cash flow properties at 7% interest rates.
If you are having trouble findin a minimal 10.4% return, wait till you try this one, +ve cashflow properties are now harder to find, if you are getting loans at 7% interest rates.
cheers
s.i.sSave on a regular basis
“People forget that by saving just $3 per day and investing it sensibly over a working life, you’ll end up with around $1 million.”
http://www.theenlightenedway.com/tools/mil_calc.shtmlI think the main point of the 11 second solution is that it requires no calculator – just a bit of simple mental arithmetic and you have an answer.
I can’t divide by 769 in my head, so I reach for the calculator. Once it’s in my hand, I might as well do a precise calculation.
Also to get a rough indication of what return you need for positive cf when interest rates are varying, maybe a formula of
Required Yield (%) = Int Rate (%) + 4%
would be OK.
The 4% margin is for other costs, repairs, contingency factors, etc. If you want decent profit, then it could be 5 or 6%.
Assuming you’re stranded without a calculator though (and have no way of dividing by 769), maybe stick with the 11 second solution formula and taking off 10 or 20% (easy to do mentally) to get the higher yields required.
Regards, Peter
SIS, I must have something wrong here,
$200,000 divide by 769 = 260.7 x 2 = $520.00
$520.00 per week for a $200,000 house!
WHERE DO I SIGN!!No Joff, I don’t think you’ve done anything wrong.
That is 13.52% yield.
Rod.
Hey Team,
The rental figures may seem high, but thats what you have to aim for, if you want positive cashflow.
Though if you had trouble finding 10.4% returns, your gonna find harder with 13.5% returns at 7% interest rates.
cheers guys, good look with your hunting.
s.i.sSave on a regular basis
“People forget that by saving just $3 per day and investing it sensibly over a working life, you’ll end up with around $1 million.”
http://www.theenlightenedway.com/tools/mil_calc.shtml
$200,000 divide by 769 = 260.7 x 2 = $520.00
$520.00 per week for a $200,000 house!
The rental figures may seem high, but thats what you have to aim for, if you want positive cashflow.Fully financed, a $200K loan at 7% IO = $270 per week. Are you seriously telling me SIS that the ‘other’ costs for this property are going to amount to $250 per week, or $13040 per year – for rates, body corp, land tax etc?
I don’t think so Tim.[
]Cheers
MelI don’t like your rule! Now I only have two +cf, one neutral and one -cf property. [
]On the 11 sec rule I had 3 +ve and 1 -ve. I like the old rule beta[
]Mick INC
Hi All,
As SIS talk about the 100% loan. So for $200k property we have to borrow 215k after all the expenses.
As every one discussed before on this forum and in books also we read that for 50k property if we have $25 per week cash flow then it’s +ve cash flow property. According to this rule if we are spending about 200k so we should be having $100 per week cash flow for +ve cash flow property.Now for $216k loan is 17359 (P+I) and property expense will be 5445 (including bord corp+rates+insurance+repairs+management fees etc)
520*50 = 26000 rent coming (considering 2 week vacancy)
Now cash flow is = 26000-17359-5445 = 3196
Cash flow per week is $61.
If you want to use Interest only this figure will be a bit more let say $100. which is right cash flow for 200k property according to above rule.
Even if you put 5% deposit numbers won’t change much.
Hope I am clear with my numbers.
Cheers
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PropertyGuRu
Who want to be billionaire?Hi all,
PropertyGuru, your calculations are correct as are SiS, but a reality check is required here. I own 2 ip’s in the south frankston area,1 valued at 190k-210k and the other 220k.
First one rents for 180 pw and second for 185 pw.
that is average for the area for this price range of house.
Now based on the current valuations the return is around 5%.Not good.
But I payed 120k ansd 117k for these props 2 years ago, so right now I could’nt care less about the weekly or yearly returns on rental.In fact I aim to leave the rents where they are for the next year at least, to keep my good tenants.My point is that under the SIS rule i would have to ask around $520 pw for these properties, and that aint gonna happen.Anywhere!
As in most property deals, the profit is in the buying. Chase capital gains/growth, and treat + positive cash flows as a by product of good asset and financial management.
Hi Joff,
You are right. Actually you can’t get that high return for that sort of expensive property and now even hard to get this type of return for cheap properties. So we can say it’s really hard to get good +ve cash flow until you don’t put big deposit. But I spoke to one person yesterday she bought IP for 10k spent about 3k on it so lets say spend 15k and rent is 80 per week. I think this is good return.[8D]
Cheers
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PropertyGuRu
Who want to be billionaire?Hi Joff,
Your are correct, in what you say. Though the problem is, that the 11 second solution does not work on interest rates of 7%, unless the property you are purchasing on the 11 second solution, can have enough deposit payed down, to reduce the actual loan borrowed. Where the rental exceeds all expenses and loan repayments and leaves a cash on cash return.
But due to the interest rate rise. The SIS Rule is now applicable, though, its going to be harder to achieve.
For the people who were able to get properties that met the 11 second solution, when interest rates were at about 5% as such, maybe fine. But when there loan repayments become or start working at 7% interest rates, – were their existing left over “Total Loan Balance” must have a property achieve 13.52% GYR to keep up with weekly, fortnightly or monthly loan repayments. If not, their property will not be +ve geared.
But i very much do agree with you “treat + positive cash flows as a by product of good asset and financial management”
cheers
s.i.sSave on a regular basis
“People forget that by saving just $3 per day and investing it sensibly over a working life, you’ll end up with around $1 million.”
http://www.theenlightenedway.com/tools/mil_calc.shtmlProperty Guru,
Actually, I feel sorry for those people trying to get a foothold into the investment market.
There are contant posts here about people running all over the regional centres looking for cash positive properties.I have invested in rural areas,but stopped buying earlier this year to let the growth run a bit on props I had to see where prices went. Now you see discussions on investors jiggling figures in order to justify buying some run down property 7 hours drive from anywhere where any capital gains has probally already happened.
I am not saying the deals are not out there, but Just because a 60k house deal in whoop whoop calcs out at 20pw cash positive is only a very minor part of the equation.
Who knows where this market is going at the moment, but I will only look at quality (and I don’t mean high price, more location) for a while now.Hey SiS
I like your style buddy. I love the SiS rule and will use it widely. What I think a few people aren’t getting is that your rule is the 2004 rule for borrowing 100%(plus costs). To those (like me) who have no cash but have heaps of equity to buy property it will be a very useful tool.
The 11 second rule is so far out when calculating for a +ve property if you are borrowing 100%. But I guess it still has been a help beacause your SIS rule is modelled on it.
Mick INC – you said:
I don’t like your rule! Now I only have two +cf, one neutral and one -cf property.On the 11 sec rule I had 3 +ve and 1 -ve. I like the old rule beta
It shouldn’t make any difference to how the property comes out. As long as you have calculated it on purchase price along with a 7% interest rate.
‘Eat rich food, barbeque a yuppie’
Hi All,
An easy rule to calculate mentally for a 15.6% yield is divide rent by 3, multiply by 1000 to get the house price.
These houses are out there. so this may help with easy calculation.
Regards,
Si
Hi All,
An easy rule to calculate mentally for a 15.6% yield is divide rent by 3, multiply by 1000 to get the house price.
These houses are out there. so this may help with easy calculation.
Regards,
Si
This is perfect Rule! I like this one!Cheers
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PropertyGuRu
Who want to be billionaire?
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